S.E.C. Charges Six Chinese Citizens With Insider Trading

Six Chinese citizens have had their assets frozen in connection with an insider trading case involving a Chinese pork processing company, the Securities and Exchange Commission announced Friday.

The S.E.C.’s complaint, which was filed in a United States District Court in Chicago on Wednesday, alleges that six Chinese citizens – Siming Yang, Caiyin Fan, Shui Chong Chang, Biao Cang, Jia Wu, and Ming Ni – made more than $9 million by trading in the shares of Zhongpin Inc. ahead of the announcement of a management-led buyout offer last month. A British Virgin Islands-based entity formed by Mr. Yang, Prestige Trade Investments, was also named in the complaint.

According to the S.E.C.’s allegations, the defendants bought more than $20 million in stock and call options for Zhongpin’s shares between March 14 and March 26, just days before Zhongpin’s chief executive offered to take the company private for $13.50 per share. The announcement of that bid sent Zhongpin’s stock price up 22 percent.

The defendants’ trades were highly unusual, the S.E.C. said in its complaint, both because many of the them had never traded in Zhongpin before and because some of the facts surrounding the trades did not seem to add up. Mr. Yang, the agency said, told his broker that he was an accountant with an annual income of $52,500, when he was working as a research analyst with a New York-based investment firm.

“The defendants in this action — each with seemingly limited resources — suddenly and inexplicably purchased more than $20 million in Zhongpin securities just before an important public announcement,” said Merri Jo Gillette, director of the S.E.C.’s Chicago office. “The S.E.C.’s swift action to secure a judicial freeze order prevented millions of dollars from moving offshore.”

The S.E.C.’s investigation into the trades is ongoing. The agency had sought an emergency asset freeze order, it said, to prevent the defendants from moving millions of dollars in potentially ill-gotten gains offshore.

The buyout offer made by Zhongpin chief Xianfu Zhu has been contested by some shareholders. On Wednesday, a lawsuit brought by an investor in the company, Philip Meeks, was made public. The suit alleged that Mr. Zhu’s offer was inadequate.

Zhongpin, which processes pork products and other food for customers including Wal-Mart Stores, KFC and McDonald’s, trades in the United States under the stock ticker “HOGS.”